## Facts

- The United States levied on roughly eighty acres of improved real property near Golconda, Nevada, to collect federal income-tax liabilities assessed against Ray Hardy.
- Title to the real property was held in Cathy Hardy’s name, and Cathy Hardy, the Hardy Family Trust, and Cathy Hardy as trustee sued the United States under 26 U.S.C. § 7426, claiming the levy was wrongful because Ray had no interest in the property.
- The government argued the property was acquired during the marriage and therefore was presumed community property under Nevada law, making it subject to levy for either spouse’s federal tax liabilities.
- Cathy offered evidence that the down payment for the purchase came from proceeds of her divorce settlement from a prior marriage.
- Cathy also asserted she made mortgage payments using money she earned.
- Cathy and Ray submitted affidavits stating that they had an oral agreement that each spouse’s earnings would remain that spouse’s separate property.
- The government disputed that any such oral agreement existed and argued that, even with Cathy’s evidence, she could not meet Nevada’s clear-and-convincing standard required to prove the property was separate.
- The case reached the district court on the government’s motion for summary judgment.

## Issues

1. Whether, under Nevada law, Cathy Hardy produced clear and convincing evidence sufficient to rebut the presumption that real property acquired during marriage is community property.
2. If the property is community property, whether the United States may levy on it to satisfy Ray Hardy’s individual federal income-tax delinquencies despite Cathy Hardy’s title.
3. Whether any dispute over the asserted oral separate-property agreement or the source of purchase and payment funds created a genuine issue of material fact that prevented summary judgment in the § 7426 wrongful-levy action.

## Decision

- The court granted the United States’ motion for summary judgment.
- The court held that Cathy Hardy did not rebut Nevada’s community-property presumption by clear and convincing evidence.
- The court concluded the real property was community property and therefore subject to IRS levy to satisfy Ray Hardy’s federal income-tax liabilities.
- Judgment was entered for the United States on the wrongful-levy claim.

## Legal Principles

- A person other than the taxpayer may sue the United States under 26 U.S.C. § 7426 to challenge an IRS levy as wrongful when the person claims an interest in the levied property.
- Federal tax collection by levy reaches whatever property interests the taxpayer has under state law; state law determines the nature and extent of the taxpayer’s property rights.
- Under Nevada law, property acquired during marriage is presumed to be community property, and a spouse claiming separate ownership must rebut that presumption by clear and convincing evidence.
- Community property is owned by both spouses; if property is community, it may be reached to satisfy the federal tax liability of either spouse.
- Summary judgment is appropriate when, even viewing the record in the nonmovant’s favor, there is no genuine dispute of material fact and the movant is entitled to judgment as a matter of law; a party bearing a heightened burden at trial must produce evidence that could satisfy that burden to avoid summary judgment.

## Conclusion

The district court ruled that the Nevada real property was presumed community property because it was acquired during the Hardys’ marriage, and Cathy Hardy’s tracing evidence and affidavits about an oral earnings agreement did not meet Nevada’s clear-and-convincing standard to prove separate ownership. Because the property was community property as a matter of law on the summary-judgment record, Ray Hardy had an ownership interest in it, and the IRS levy to collect his federal income-tax delinquencies was not wrongful under § 7426.


Hardy v. United States, 918 F. Supp. 312 (1996)